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PENSIONS

Back to school: Hollande faces gruelling term

As the French government heads back to work on Monday, one would hope for his sake that President François Hollande had an especially relaxing summer holiday. Because between jobs, pensions and taxes, he faces a testing new term. Here's a look at his workload.

Back to school: Hollande faces gruelling term
Worried? Moi? French President François Hollande faces an unusually hectic return to work after the summer holidays, with jobs, taxes, and pensions on the agenda. Photo: Bertrand Langlois/AFP

Monday is back-to-school day for Hollande and his cabinet after their summer holidays. And with a hectic, even daunting list of legislation and policy challenges ahead of them, they would have been forgiven for wanting to press the snooze button on their alarms this morning.

Contentious pension reforms, cuts to social security, a freeze on public sector pay – the autumn looks like a minefield for Hollande and his government, as he starts what looks likely to be the most challenging period of his presidency so far.

French financial daily Les Echos calls it a "turning point" for his administration. "The real danger for Hollande would be giving in to the temptation to do nothing," says an editorial on Monday.

"Above all, he will be judged on the results of his economic policy."

While much of the French media focuses on what Les Echos calls a potentially "explosive" battle over pensions, government spokeswoman and Minister for Women's Rights, Najat Vallaud-Belkacem, for her part promised that tackling unemployment would be the government's priority.

"The watchword of this back-to-work period is staying active on the jobs front," she told French daily Le Parisien on Monday.

Here's what's on the timetable:

Budget

The task at hand? Le Parisien notes that France needs to find €14 billion ($17 billion) of savings between now and the end of 2014, in order to bring its deficit below three percent of GDP, as mandated by the EU.

Those efforts will begin with legislation set to be introduced on September 25th, which should lay out exactly where the money will come from.

Some €9 billion ($12 billion) in cuts, however, is due to come from France’s considerable public sector payroll. The salaries of civil servants currently increase year-on-year by three percent, but Hollande’s government wants to limit that increase to 0.15 percent next year.

Furthermore, around €1.5 billion ($2 billion) is expected to come from a cut to allocated subsidies to local authorities throughout France, as well as from state agencies such as Météo France, the country’s national meteorological service.

Jobs

The bête noir of Hollande’s presidency so far, unemployment reached a record high of 3.28 million in June.

However, a negligible increase in May, and an only slight rise in June means hopes are high that France may be about to turn a corner, and that joblessness may actually decrease for the first time in 27 months, when July’s figures are published on August 27th.

Beyond that, though, the Socialist government will be expected to move closer to its target of creating 100,000 new jobs for young, lower-skilled workers, under the “Jobs of the Future” program it launched earlier in the year.

Pensions reform

France’s national pension regime could fall €20 billion ($27 billion) into debt by 2020, and a tough new plan to restructure those schemes by that time could turn out to be the most contentious challenge for the government this autumn.

Prime Minister Jean-Marc Ayrault is scheduled to meet with unions and employer representatives on August 26th and 27th to unveil the government’s legislation on pensions. The cabinet should take a look at the bill on September 18th, before it goes to the National Assembly later in the autumn.

The reforms look set to be hotly-contested, however, with the powerful CGT union having already scheduled street protests for September 10th.

In addition to hammering out a major cost-cutting plan, Hollande and his ministers will also face the daunting task of explaining to voters the changes to France’s fiendishly complicated pensions regime.

Taxes

The finance bill, to be presented on September 25th, will aim to bring in an additional €6 billion ($8 billion) to state coffers.

Of most direct relevance to consumers will be a wide-ranging rise in VAT, set to come into force on January 1st 2014.

The normal rate will go from 19.6 to 20, or even 21 percent, and the intermediary rate, which applies to restaurants and cinemas, for example, will increase from seven to 10 percent.

The lower rate of VAT, however, imposed on food as well as gas and electricity bills, will fall from 5.5 to 5 percent.

Health service

According to figures quoted in Le Parisien, the deficit in France’s Social Security system could reach €7.9 billion ($10.5 billion) in 2013, as opposed to the €5.1 billion ($7 billion) previously expected.

As a result, Hollande will be under even more pressure to find savings, and the country’s national health insurance agency, ‘Assurance maladie,’ has advised the government to cut €2.48 billion ($3.3 billion).

Lowering the price of medication should save €750 million ($1 billion).

Using generic medicine more, and cutting back on trivial hospital visits and prescriptions, which has caused controversy in France in recent months, could net €600 million ($800 million).

Manufacturing

Minister for Industrial Renewal, Arnaud Montebourg has promised to launch a “battle plan” for French industry in September,  as French companies struggle to compete on the global market, and French industrial production dropped 1.4 percent in June.

Started by the previous government of former French President Nicolas Sarkozy, Hollande’s drive to get French consumers to purchase “Made in France” products has been far from an overwhelming success.

Last week, economist Lionel Fontagné told The Local the "Made in France" policy was “misplaced”, after a study he co-authored found that switching from cheaply-made foreign goods to entirely French-made products would cost a household up to €300 ($400) extra every month.

A modest rise in manufacturing exports, however, suggests that the right conditions may be present for what Montebourg told French daily Le Parisien would be “the beginning of a transformation for our industries, towards strength on the international markets."

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SECOND HOMES

Tax hikes of up to 60% for French second home owners

Towns and villages through France are raising property tax rates for second-home owners, with many areas voting for the maximum 60 percent increase.

Tax hikes of up to 60% for French second home owners

Even though France’s taxe d’habitation (householders’ tax) is in the process of being phased out for most French residents, second-home owners are still required to pay it.

This year more towns have voted to increase it, and others have recently gained the ability to add a surcharge for second-home owners, with French daily Le Parisien reporting that the residence tax “continues to soar.” 

Municipalities in zones tendues (areas with a housing shortage) have the ability to choose to increase taxe d’habitation by up to 60 percent for second home owners.

From 2023, several new areas – including Nantes – will join the list of zones tendues, meaning they will be able to vote to increase taxes for second-home owners.

This year, large cities such as Bordeaux, Lyon, Biarritz, Arles and Saint-Jean-de-Luz saw their city councils vote to increase the tax at the maximum 60 percent.

READ MORE: Why some French cities are increasing taxes for second-home owners

Some areas have still not chosen to apply the increase, but those looking to buy a second home in France should beware that these municipalities could vote to increase the taxe d’habitation in the future.

In 2020, cities on average voted to increase the residence tax on second homes by 248.50, in comparison to €217 in 2017. This year, that amount is expected to be even higher.

On top of the taxe d’habitation, second-home owners also have to pay the separate taxe foncière property tax, which is itself rising sharply in many areas.

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